Money Myths, Busted!

Woman looking at a piggy bank through a magnifying glass

Odds are, you never took a personal finance class in school, nor spent hours researching money intel online just because it fascinated you. In fact, if you’re like many people, you learned most of what you know about finances from friends, family, and grabby headlines on the Internet.

Which could mean you have a number of money myths living rent-free in your head.

And those false beliefs could mean you aren’t getting the most out of your hard-earned dough, managing your debt optimally, or saving well toward your long-term financial goals.

To help you repair that situation, read on. You’re about to learn some valuable money mythbusters, which can help you reduce financial stress and get your financial life in better shape.

Money Myth #1: Carrying high balances helps build your credit faster.

This is a harsh one. Some people believe that the way you build a solid credit history is to rack up a balance. They think that’s what it means to use credit.

Wrong! You want to be sure that your balance doesn’t tip over 30% of your credit limit. That 30% is the maximum credit utilization ratio that lenders like to see. Go over that amount, and you risk dinging your cherished credit score. In a perfect world, you’d pay your credit card in full every month, not actually using any of that credit at all — but let’s get back to reality.

What a 30% credit utilization ratio looks like is carrying a balance of no more than $6,000 if your credit limit is $20,000. Do your best to keep that ratio below 30% of all credit usage. (This applies for unsecured debt only, meaning it doesn’t include a mortgage or similar secured loan.)

Money Myth #2: I’d be happier if I had more money.

As the Beatles sang, money can’t buy you love, or even happiness, for that matter. Sure, splurging on new clothes or a random weekend away or fun, but the truth is, millionaires aren’t too much happier than the rest of us. Why? Because life throws them the same ups and downs. And those who come into sudden wealth (ahem: lottery winners) can be especially vulnerable to satisfaction curveballs.

So remember: The more joy you have, the happier you will be. And despite what social media may lead you to believe, you can’t buy joy.

Money Myth #3: Building up an emergency fund can wait.

Nope! This is a common but potentially really damaging belief. Because emergencies can crop up at any time, whether a tooth that breaks while eating soup (yes, it can happen) or a pricey car repair because of a parking lot fender bender. The last thing you want to do in these situations is have to break out your credit card and then add the additional expense of high-interest debt to that bill.

Financial experts typically recommend that you sock away three to six months’ worth of living expenses for a rainy day, but many people have not a single dollar to fall back on. We get it. Bills must be paid. But please understand this: Even if you set up an auto transfer of only $20 per payday to savings earmarked for emergencies, that’s a good thing. The point is to just get started so you aren’t already behind the 8-ball when life’s next little emergency hits.

Money Myth #4: Credit scores are essential only to borrow money.

Sorry, but that credit score can matter in multiple situations, beyond just helping you get offered a loan or a good interest rate on a line of credit. Employers may ask to access your three-digit number, and it may be checked when you need security clearance or are getting an insurance policy.

Those who are trying to rebuild their credit are probably well aware of this. But if you’ve never paid attention to your credit score (as in, “I have no idea what my score is”), you could be in for a rude awakening. It’s just good practice to know what your credit score is.

Money Myth #5: I’m retiring at age 65, period.

Once upon a time, in a land of pensions and a shorter life expectancy, 65 may have been a magic number. But things are different now. Retirement happens when you’re ready. That could mean delaying taking Social Security until you are 70. It might mean drawing from your 401(k) sooner or later. Or working, full-time or part-time, for the rest of your life.

Only you will know when and how to retire — but you must first do the research on money saved and benefits likely to come your way as well as map out what your expenses will look like.

Money Myth #6: If I can pay my living expenses, I don’t need to budget or save.

Sorry to be a buzzkill, but living paycheck to paycheck isn’t something to aspire to. Budgeting and saving are important parts of life that keep you in good financial shape and even let you build personal wealth.

Budgeting, which means organizing your money, isn’t about deprivation: yes, you can still drink lattes, and with a functioning budget you’ll actually be much clearer on when you can spend (which feels pretty great, instead of the guessing-and-hoping spending tactic). Budgeting will also typically build in such important financial functions as paying down debt and saving for short- and long-term goals. A system like the popular 50/30/20 budget, which says 50% of your take-home pay goes to necessities, 30% to wants, and 20% to savings and additional debt payment, can be a good place to start.

Money Myth #7: Having a large amount of debt is standard these days.

Unfortunately, this myth is true. According to data from the Federal Reserve, consumer credit card debt has hit $1.079 trillion (trillion!). When that data is coupled with intel from  the U.S. Census Bureau, the average American has almost $8,000 in high-interest credit card debt. But just because it’s standard doesn’t mean it’s a good thing.

Credit card debt is high-interest debt and can be a real challenge to pay off. Start by paying those down or looking into other ways to wrangle what you owe so you can get out from under the debt and money anxiety.

Money Myth #8: I deserve a reward, so I’ll splurge.

The first part is true: Everyone deserves a reward for hard work, supporting friends and family, and all other kinds of effort. But the splurging part, that’s another matter.

You can build small or not-so-small splurges into your budget, but they should happen when you’ve accumulated a nice bundle of “fun money.” If you have a major medical bill to pay and your rent just went up, yes: You are stressed. But now isn’t the time to buy an expensive new mobile device just because. Buy yourself a fancy cocktail maybe, or a new set of workwear. Stay on track with budgeting and managing your debt, and you’ll breathe a lot easier about your finances. And that, trust us, is a reward you really deserve.

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